Mistakes Investors Make When Considering CD’s

file0001539596844Over the past several years, low-interest rates have made Certificates of Deposit a less than popular investment tool. The low returns and slow growth have proven particularly troublesome for some investors. The rate hike in December could bolster CD returns slightly, however they probably will not climb as quickly as some investors would prefer. If you do want to include CD’s in your investment mix, here are a few things to keep in mind so that you don’t make common investor mistakes.

  1. Prepare for rate hikes – Locking in a CD yield right before a rate hike could also lock you into lower returns. While it is uncertain if banks rates will respond immediately to rate hikes, when considering what has happened in the past, there is potential that higher yields might be triggered when and if a rate hike occurs. Being vigilant in studying the market could mean higher future returns.
  2. Think carefully about long-term CD’s – Given the fact that rate hikes are a possibility, committing to the current rates for a 4 or 5-year CD could prove very costly. In addition to under earning for many years to come, locking into a long-term CD, which often has significant early withdrawal penalties, may not allow you to move into a better option if it becomes available,
  3. Don’t put all your eggs in one basket – If you decide to include CD’s in your investment mix, be sure to include a range of maturity dates. This offers you a regular supply of maturing CD’s that can be reinvested at higher terms (or different investment tools) as interest rates rise.
  4. Consider other options – CD’s are often chosen as investment vehicles because they are safe. However, safe is not always best. Given current the low returns on CD’s, it might be better to put your money into a higher yield investment with a little more risk than to tie your money up in a long-term CD that will not produce over the long-haul.
  5. Don’t roll over – Allowing your CD to roll over automatically upon maturation is not a good idea. Instead we suggest examining your options. Perhaps that might mean another CD, but it could also mean a different investment vehicle.

Now might not be the best time to add a CD to your portfolio, but if you do choose this investment option, consider your next steps very carefully. Better still, we recommend talking to a trusted fee-only financial advisor who can help you determine the best place for your hard-earned money.

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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